During the COVID-19 pandemic, household debt largely fell or remained flat after many employers temporarily shut down and government policies helped people delay having to pay off debt, allowing them to save more money. But since then, household debt sharply increased, particularly with one demographic group: millennials, or people born between 1981 and 1996.
The biggest part of that demographic group—people in their thirties—struggled with a record-high debt of over $3.8 trillion at the end of 2022, up 27% from 2019, according to data from the Federal Reserve Bank of New York and reported by the Wall Street Journal. That was the largest accumulation of debt by that age group over any three years since the financial crisis in 2008.
Credit card delinquency rates, or credit card payments that are more than 90 days past due, are also the highest now among thirtysomethings compared to any other age group, the New York Fed and Liberty Street Economics found earlier this month. Among millennials, credit card balances averaged $6,750 in January, up about 26% versus three years earlier, the Journal wrote.
“Robust consumer spending, the hottest inflation readings in 40 years, and sharply higher credit card rates have combined to push credit card balances to a new record high,” Ted Rossman, a senior analyst at Bankrate, told Fortune this month.
When the pandemic complicated the financial situation for Americans, stimulus checks and suspension of loan repayments were meant to alleviate some of the financial pain. But by 2022, Morgan Stanley reported that consumers had spent 30% to 50% of their $2.7 trillion surplus in savings.
Growing debt is bad news for everyone. For millennials, this could mean a widening wealth gap with older generations and less opportunity to save money and invest for the future. Many millennials started their careers during or around the Great Recession in late 2007, depressing their ability to earn from early on. The economic and housing boom since the 1980s helped many baby boomers earn a good living. But the same can’t be said of millennials.
Since the 1960s and 1970s, the wealth gap has doubled between those over 60 and under 40, a study found last year. Rapid rising debt coupled with the generational wealth gap means millennials are likely to have a harder time establishing themselves and making investments like older generations.
The federal government is trying to help the situation through President Joe Biden’s student loan forgiveness program, the topic of a Supreme Court case this week. If allowed, loan forgiveness could significantly ease the financial position for those burdened by debt repayment obligations, which have been paused for about three years since the onset of COVID-19. And millennials make up a significant share of those holding federal student debt.
But several other factors may cause the current trends in debt and wealth to continue. For one, the Federal Reserve’s efforts to bring inflation under control have also pushed up interest rates on debt, from housing to auto to credit cards. As with everyone, thirtysomethings who are home shopping are having to face sky-high real estate prices and higher borrowing costs.
The impact of debt has serious implications for the future, as well, for millennials. Debt levels can impact decisions like whether they have children, resulting in broad economic ramifications.
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